Household spending helps Germany avoid recession

A rise in German consumer spending kept the country out of the jaws of
recession, official data confirmed on Friday, though two closely watched
surveys suggested activity in Europe's biggest economy had picked up.

The second estimate of GDP confirmed an initial reading, and means Germany narrowly avoided a technical recession, defined as two consecutive quarters of economic contraction.Photo: Alamy

The 0.8pc rise in German household consumption in the first three months of the year provided almost the "only" positive contribution to growth in the first quarter, German statistics office Destatis said on Friday, and helped the country to eke out 0.1pc growth, following a 0.7pc contraction in the final three months of 2012.

The second estimate of GDP confirmed an initial reading, and means Germany narrowly avoided a technical recession - defined as two consecutive quarters of economic contraction.

"German consumers remain the silent helpers of the economy," said Carsten Brzeski, an economist at ING. "Often forgotten, ignored and labelled as had-beens, German consumers have become an important growth driver. In fact, private consumption grew in each since quarter since 1Q 2012."

Destatis said that first quarter growth was pulled down by the harsh winter weather. Public-sector spending slipped by 0.1pc, investment tumbled 2.4pc, imports were down 2.1pc and exports contracted by 1.8pc.

However, there were several signs that the German economy had improved in recent months. Data showed that business confidence rose by more than expected in May, as businesses became more optimistic aboput the future.

The Ifo economic institute's closely-watched business climate index rose to 105.7 points in May, from 104.4 points in April. Economists had expected an unchanged reading.

Klaus Wohlrabe, an economist at the Ifo, said he expected German growth to rise significantly in the second quarter. He added that construction activity had picked up "immensely" in May, while domestic demand remained strong.

Separate data also showed that German consumer confidence was forecast to rise to its highest level in six years in June. GfK's household confidence index was expected to climb to 6.5 points next month, from 6.2 points in May.

The survey of about 2,000 households regarding their expectations about pay and the economy has a long-run average of zero.

"Even though the European Commission has forecast a recession for the eurozone this year, German consumers are not letting this sour their optimism," GfK said in a statement.